What the controversial triple lock means for state pensions

Pensioners are set for an 8.5% rise in state pension payments from next April under the controversial "triple lock" system. 

Chancellor Jeremy Hunt confirmed in his Autumn Statement that the state pension will rise by 8.5% to £221.20 a week for the new state pension and £169.50 a week for the old basic state pension – for those who reached retirement age before 2016. 

The payment has been set based on a triple lock calculation that is meant to ensure the value of the state pension isn't "overtaken by the increase in the cost of living or the working population's income", said BBC News. 

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But there are fears over how expensive the system is becoming, and how fair it is for future generations, plus pensioners may end up having to pay more tax on the payments. 

The Organisation for Economic Co-operation and Development (OECD) has this week warned that the triple lock should be reformed, said Sky News, as public finances remain "vulnerable to shocks" such as further increases in energy prices and geopolitical tensions. 

What is the triple lock?

The triple lock is a policy introduced in 2010 by the coalition government. It was designed to help protect pensioners' incomes by increasing the state pension in line with average wages, inflation, or by 2.5%, whichever is higher. 

The wage data is based on pay growth figures for May to July, which were released in September by the Office for National Statistics and showed weekly earnings rose by 7.9%. 

This was far higher than the Consumer Prices Index measure of inflation at the time of 6.3%, which has since fallen to 4.7%. 

The Institute for Fiscal Studies (IFS) has warned the triple lock is "increasing public finance pressures" and risks the sustainability of the state pension system, creating "heightened uncertainty" for people retiring in the future. 

Why is the triple lock so controversial?

There are "issues and challenges" around funding the triple lock, explained Unbiased. 

Department for Work and Pensions (DWP) spending on the triple lock has increased from £69.8 billion when it launched in 2010 to £104.9 billion in 2021/2022, making it a "politically emotive" subject that, considering the ageing population and falling birth rate, won't go away any time soon. 

The IFS said the triple lock has added £11 billion to spending on the state pension in 2023/2024 and will cost an extra £2 billion in 2024/2025. 

Economists often criticise the triple lock as being "too expensive to maintain", said The Times Money Mentor, with about 60% of welfare spending going towards pensioners. Critics also suggest there is "intergenerational unfairness". Should younger people "subsidise the income of older people at a time when they may be struggling with their own living costs"? 

Writing in The Times, the former Conservative leader William Hague described the triple lock as "unsustainable and unfair", highlighting that younger generations struggle with "high rents and student loan payments while earlier generations were able to buy a home more easily and benefited from decades of house price inflation". 

However, many pensioners are reliant on these payments, Becky O'Connor, director of public affairs at PensionBee, told the i newspaper. "They don't get pay rises or have the option of getting a higher-paid job, and the higher cost of food and energy has a disproportionate impact on retiree households because, generally speaking, these costs make up a higher percentage of their spending."  

By how much could the state pension rise?

State pension payments rose by 10.1% in April. Those on the new full state pension saw their payments rise from £185.15 per week to £203.85.  

From April 2024, payments will rise to £221.20 per week or £11,502 per year, for people on the new full state pension. 

While pensioners and those approaching retirement may be "cheering the increase", said MoneyWeek, many will be "dragged into the income tax net" and may have to start paying tax on their income due to frozen tax thresholds. 

Personal tax thresholds have been frozen at £12,570 until 2028 so pensioners receiving the full annual state pension of £11,502 "will only need a small amount of extra income" to enter the tax net, added the financial website. 

What is the alternative?

The government could suspend the triple lock if necessary. It temporarily removed earnings from the equation in 2022-23 due to a "post-lockdown spike in wages", explained NerdWallet, and increased the state pension by the inflation measure of 3.1% that year. 

Former pensions minister Baroness Ros Altmann has called for a "double lock", which would guarantee an increase of either inflation or average wages. 

A more "pessimistic scenario", added Unbiased, would be for the state pension to have only a single lock, linked either to wages or inflation, but this may mean pensioners' spending power is reduced over the medium to long term. 

The worst-case scenario would be returning to when the state pension was "simply made at the whim of the chancellor", the financial website added. 

The OECD has proposed indexing pensions to an average of inflation and wage growth, while "providing direct transfers to poor pensioners to mitigate poverty risks". 

Another option is to raise the state pension age, currently at 66 for both men and women. This week, an ex-Cabinet minister told the i newspaper the government should "look at the retirement age in future" to reduce the cost of the state pension.

They explained that the "truth" is that Britons have not been "having enough children as a nation to pay for the welfare state as a whole". 

Marc Shoffman is an award-winning freelance journalist, specialising in business, property and personal finance. He has a master’s degree in financial journalism from City University and has previously written for FTAdviser, ThisIsMoney, The Mail on Sunday and MoneyWeek.